quarterly report - q2 2015 - bdc...cmf. as of september 30, 2014, the sip team has invested in 92...

September 30, 2014

SECOND QUARTER

SECOND QUARTER

September 30, 2014

2

BDC | QUARTERLY FINANCIAL REPORT – SECOND QUARTER 2015 (ended September 30, 2014)

EXECUTIVE SUMMARY

T he Canadian economy improved during the

second quarter of this calendar year and is

expected to grow by over 2% in 2014.

Canadian exports increased by 10.9% in

the first six months of calendar 2014 compared

to the same period in 2013, benefitting from

stronger economic growth in the United States.

As well, Canadian business confidence is

improving, leading to greater investments,

especially among Canadian exporters. BDC’s

most recent survey on business investment

intentions shows a clear improvement compared

to last year, which is consistent with Bank of

Canada results. Consumer spending continues

to increase, but at a modest pace. As

anticipated, the housing market has softened

and is not contributing to economic growth.

Government spending contracted in the first part

of the calendar year, as most governments are

making efforts to balance their budgets. In

summary, the Canadian economy is growing

moderately, supported by exports, business

investments and consumer spending.

The latest Bank of Canada survey reports further

easing in overall business lending conditions

during the second quarter of BDC’s fiscal 2015.

Business credit data are consistent with these

results. As of August 2014, total business credit

had increased by 7.2% over the previous 12

months, as short-term credit from chartered

banks had increased by 9.4% and long-term

credit by 4.6%.

Canadian small and medium-sized enterprises

(SMEs) are taking advantage of improved economic

conditions to invest in their businesses to improve

competitiveness. BDC is a complementary, long-

term lender and investor that takes higher risks and

offers greater flexibility to clients. We work to ensure

that small and medium-sized businesses have the

support they need to grow and succeed. Clients of

Financing(1)

accepted $1.2 billion in loans this

quarter, compared to $1.0 billion last year. For the

six months ended September 30, they accepted a

total of $2.4 billion in loans, compared to $2.2 billion

last year.

As at September 30, 2014, Financing’s(1)

loan

portfolio, before allowance for credit losses, stood at

$18.2 billion, a 2.8% increase since March 31, 2014.

BDC continued to focus on small loans, while also

supporting the growth of medium-sized firms and

participating in financial transactions with other

financial institutions. During the quarter, 1,633

clients accepted loans of $250,000 or less for a total

of $137.1 million this quarter, compared to 1,721

clients and $132.8 million during the same period

last year. For the six months ended September 30,

2014, 3,318 clients accepted loans of $250,000 or

less for a total of $271.8 million, compared to 3,467

clients for the same amount last year.

(1) Unless otherwise indicated, Financing excludes Growth &

Transition Capital.

The Business Development Bank of Canada (BDC) is a Crown corporation wholly owned by the Government of Canada.

Our mission is to help create and develop Canadian businesses through financing, venture capital and consulting services, with a focus on small and medium-sized enterprises.

When entrepreneurs succeed, they make an irreplaceable contribution to Canada’s economy. Supporting them is in our national interest.

3


EXECUTIVE SUMMARY

Growth & Transition Capital continued to support

the growth plans of Canadian entrepreneurs through

its diverse product offerings, with clients accepting

$58.1 million in financing in the second quarter, for a

total of $92.7 million for the six-month period,

compared to $68.7 million and $104.1 million,

respectively, for the same periods last year.

To support innovative Canadian companies and

create the conditions for success in the venture

capital ecosystem, Venture Capital authorized

investments totalling $30.1 million in the second

quarter, compared to $14.0 million in the same

period last year. For the six-month period ended

September 30, a total of $70.3 million was

authorized, compared to $32.6 million in the same

period last year. Greater fund activity and a large

financing round for one of our direct investments

accounted for most of the increase in authorizations.

BDC Capital’s Strategic Investments and

Partnerships (SIP) team continued to develop

initiatives to support key areas of the venture capital

ecosystem. It makes investments in specialized

funds and accelerators. During the quarter, the team

announced an agreement with the Canada Media

Fund (CMF) to provide companies that have

received CMF funding with greater access to capital

in order to accelerate the commercialization of their

projects and attract additional private sector

investments. BDC will support eligible companies

with a convertible note worth $150,000 to

complement investments already committed by the

CMF. As of September 30, 2014, the SIP team has

invested in 92 start-ups, representing $14.0 million.

During the quarter, BDC continued to support the

deployment of the Venture Capital Action Plan

(VCAP), a federal government initiative to invest

$400 million to increase private sector venture

capital financing for high-potential, innovative

Canadian businesses.

Among the highlights in BDC’s other lines of

business, in late fiscal 2014, Consulting began

operating under a new structure designed to better

help small and medium-sized businesses improve

their competitiveness by accelerating growth,

improving productivity and building organizational

capabilities. A 24-month business transformation

plan was created, and the first set of changes was

launched during the first quarter of fiscal 2015.

Therefore, as anticipated, consulting revenues were

$4.5 million for the quarter, lower than the $5.7

million recorded for the same period last year. BDC

continued to identify and focus its efforts on services

that have the most positive impact on clients and

are complementary to those offered by private

sector financial institutions. As a result, we

discontinued some services. For the six-month

period ended September 30, revenues were $8.6

million, compared to $10.5 million for the same

period last year.

BDC is maintaining its role in the securitization

market, where SMEs access financing for the

vehicles and equipment they need to improve

productivity. As at September 30, total asset-backed

securities (ABS) stood at $380.8 million, compared

to $336.5 million as at March 31. For the six-month

period ended September 30, 2014, disbursements

totalled $107.7 million, compared to $91.0 million for

the same period last year.

In the second quarter of fiscal 2015, BDC posted

consolidated net income of $137.1 million(2)

,

compared to $86.4 million(2)

for the same period last

year. The increase was mostly attributable to higher

net fair value appreciation of venture capital and

subordinate financing investments, as well as higher

net interest and fee income as a result of the growth

in Financing’s portfolio. Net income for the first half

of fiscal 2015 was $258.8 million(3)

, $58.6 million

higher than the $200.2(3)

million recorded last year.

(2) Including a net loss of $1.3 million and a net income of $2.2

million attributable to non-controlling interests for fiscal 2015 and 2014, respectively.

(3) Including a net loss of $1.0 million and a net income of $3.9

million attributable to non-controlling interests for fiscal 2015 and 2014, respectively.

4


EXECUTIVE SUMMARY

For the quarter, consolidated total comprehensive

income was $102.8 million, compared to

$138.8 million for the same period last year. The

decrease was mostly due to actuarial losses on the

net defined benefit asset or liability. For the most

part, these losses were caused by lower discount

rates used to value the net defined benefit asset or

liability, and by lower returns on pension plan

assets. For the six-month period, total

comprehensive income was $197.7 million,

compared to $284.8 million for the same period last

year.

In September, BDC launched a microsite for BDC

Small Business Week 2014 in preparation for the

35th edition of our trademark event. Across Canada,

hundreds of national and local events will be hosted

by BDC and other organizations during Small

Business Week, which will run from October 19 to

25 under the theme “Back to Basics. Reenergize

Your Business.” They include a broad range of

speaking engagements, panels and workshops that

focus on a variety of business topics of interest to

Canadian entrepreneurs.


TABLE OF CONTENTS

6 Management Discussion and Analysis

6 Context of the Quarterly Financial Report

6 Risk Management

7 Analysis of Financial Results

16 Consolidated Financial Statements

From time to time, we make written or oral forward-looking statements. We may make forward-looking statements in this quarterly financial report. These forward-looking statements include, but are not limited to, statements about objectives and strategies for achieving objectives, as well as statements about outlooks, plans, expectations, anticipations, estimates and intentions.

By their very nature, forward-looking statements involve numerous factors and assumptions, and they are subject to inherent risks and uncertainties, both general and specific. These uncertainties give rise to the possibility that predictions, forecasts, projections and other elements of forward-looking statements will not be achieved. A number of important factors could cause actual results to differ materially from the expectations expressed.

6


MANAGEMENT DISCUSSION AND ANALYSIS

CONTEXT OF THE QUARTERLY FINANCIAL REPORT

The Financial Administration Act requires that all departments and parent Crown corporations prepare

and make public a quarterly financial report. The Standard on Quarterly Financial Reports for Crown

Corporations is issued by the Treasury Board of Canada Secretariat to provide parent Crown

corporations with the form and content of the quarterly financial report under the authority of section

131.1 of the Financial Administration Act. There is no requirement for an audit or review of the financial

statements included in the quarterly financial report. Therefore, the condensed quarterly Consolidated

Financial Statements included in this report have not been audited or reviewed by an external auditor.

RISK MANAGEMENT

Risk is an inherent feature of the financial sector. BDC uses sound practices of enterprise risk

management (ERM).

BDC manages risk through the development and communication of policies; the establishment of formal

risk reviews and approval processes; and the establishment of limits and delegation of authorities. The

Board of Directors and its Credit and Risk Committee review quarterly ERM reports and monitor the

effectiveness of BDC’s ERM practices. In each line of business, management ensures that governance

activities, controls, processes and procedures are consistent with BDC’s sound ERM practices.

No significant changes were made to BDC’s ERM practices and no new risks were identified during the

quarter ended September 30, 2014.

7



ANALYSIS OF FINANCIAL RESULTS

Analysis of financial results is provided to enable a reader to assess BDC’s results of operations and

financial condition for the six-month period ended September 30, 2014, compared to the corresponding

period of the prior fiscal year. This analysis also includes comments about significant variances from

BDC’s fiscal 2015–19 Corporate Plan, when applicable.

BDC reports on six business segments: Financing, Growth & Transition Capital, Venture Capital,

Consulting, Securitization and Venture Capital Action Plan (VCAP). All amounts are in Canadian dollars,

unless otherwise specified, and are based on unaudited condensed quarterly Consolidated Financial

Statements prepared in accordance with International Financial Reporting Standards (IFRS).

This analysis should be read in conjunction with the unaudited condensed quarterly Consolidated

Financial Statements included in this report and the audited annual Consolidated Financial Statements in

the fiscal 2014 Annual Report.

Net income

Three months ended September 30

BDC reported consolidated net income of $137.1 million for the second quarter ended

September 30, 2014, comprising $138.4 million attributable to BDC’s shareholder and a net loss of $1.3

million to non-controlling interests. This compares to $86.4 million in consolidated net income for the

second quarter of fiscal 2014, of which $2.2 million was attributable to non-controlling interests.

Net income in the second quarter of fiscal 2015 was higher than in the corresponding period of fiscal

2014 due primarily to higher net income from Financing, Growth & Transition Capital and Venture

Capital. Refer to the Financing, Growth & Transition Capital and Venture Capital sections of this analysis

for further information.

($ in millions) F2015 F2014 F2015 F2014

Financing 120.8 99.3 239.6 206.2

Growth & Transition Capital 13.0 (5.3) 16.3 6.1

Venture Capital 10.3 (5.2) 15.3 (7.5)

Consulting (5.8) (3.8) (11.2) (7.8)

Securitization 1.0 1.8 2.0 3.8

Venture Capital Action Plan (2.2) (0.4) (3.2) (0.6)

Net income 137.1 86.4 258.8 200.2

Net income attributable to:

BDC's shareholder 138.4 84.2 259.8 196.3

Non-controlling interests (1.3) 2.2 (1.0) 3.9

Net income 137.1 86.4 258.8 200.2

Three months ended

September 30

Six months ended

September 30

8



Six months ended September 30

BDC consolidated net income was $258.8 million for the six months ended September 30, 2014, which

was higher than the $200.2 million recorded for the same period last year.

Currently, BDC expects its consolidated net income for fiscal 2015 to at least meet the Corporate Plan

target of $317 million.

Comprehensive income

Three and six months ended September 30

Consolidated total comprehensive income for the second quarter was $102.8 million, comprising $137.1

million in consolidated net income and $34.3 million in other comprehensive loss. For the six-month

period ended September 30, 2014, BDC reported total comprehensive income of $197.7 million,

comprising $258.8 million in net income and $61.1 million in other comprehensive loss.

BDC recorded other comprehensive loss of $34.3 million and $61.1 million, respectively, for the second

quarter and the six-month period ended September 30, 2014, compared to other comprehensive income

of $52.4 million and $84.6 million for the same periods last year.

($ in millions) F2015 F2014 F2015 F2014

Net income 137.1 86.4 258.8 200.2

Other comprehensive income (loss)

Items that may be reclassified subsequently

to net income

Net change in unrealized gains (losses)

on available-for-sale assets (0.4) - (0.9) (0.9)

Net change in unrealized gains (losses)

on cash flow hedges (0.5) (0.3) (1.0) (2.5)

Total items that may be reclassified

subsequently to net income (0.9) (0.3) (1.9) (3.4)

Items that will not be reclassified to net income

Remeasurements of net defined

benefit asset or liability (33.4) 52.7 (59.2) 88.0

Other comprehensive income (loss) (34.3) 52.4 (61.1) 84.6

Total comprehensive income 102.8 138.8 197.7 284.8

Total comprehensive income attributable to:

BDC's shareholder 104.1 136.6 198.7 280.9

Non-controlling interests (1.3) 2.2 (1.0) 3.9

Total comprehensive income 102.8 138.8 197.7 284.8

Three months ended

September 30

Six months ended

September 30

9



Remeasurements of net defined benefit asset or liability of $33.4 million contributed to the decrease in

total comprehensive income in the second quarter. For the most part, these losses were caused by lower

discount rates used to value the net defined benefit asset or liability, and by lower returns on pension

plan assets. Since the adoption of IAS 19, Employee benefits, in fiscal 2014, the actuarial gains and

losses, as well as the returns on pension plan assets are immediately recognized in OCI. This results in

increased volatility on total comprehensive income.

Financing results


Financing’s net income was $120.8 million for the second quarter of fiscal 2015 and $239.6 million for the

six-month period ended September 30, 2014, compared to $99.3 million and $206.2 million, respectively,

for the same periods last year.

The increase in profitability was mostly due to higher net interest and fee income, mainly driven by

portfolio growth. Also contributing to the increase in profitability was a decrease in individual impairment

losses due to higher recoveries and more loans upgrades, which resulted in lower total impairment

losses on loans compared to last year.

($ in millions) F2015 F2014 F2015 F2014

Net interest and fee income 223.3 207.2 442.7 413.1

Impairment reversals (losses) on loans (19.3) (27.3) (36.7) (48.0)

Net gains (losses) on other

financial instruments (0.3) - (1.1) 0.2

Income before operating and

administrative expenses 203.7 179.9 404.9 365.3

Operating and administrative expenses 82.9 80.6 165.3 159.1

Net income from Financing 120.8 99.3 239.6 206.2

As % of average portfolio F2015 F2014 F2015 F2014


Impairment reversals (losses) on loans (0.4) (0.6) (0.4) (0.6)


financial instruments - - - -




Net income from Financing 2.7 2.3 2.7 2.4

Three months ended

September 30

Six months ended

September 30

Three months ended

September 30

Six months ended

September 30

10



Operating and administrative expenses for both the three-month and six-month periods ended

September 30, 2014, were higher than those in the corresponding periods last year. This was mainly due

to higher depreciation of project costs related to BDC’s investment in its Agility and Efficiency (A&E)

project, which also contributed to increase productivity. However, as a percentage of the average

portfolio, operating and administrative expenses were slightly lower than those in the same periods last

year.

Growth & Transition Capital results


Growth & Transition Capital’s net income for the second quarter of fiscal 2015 was $13.0 million,

compared to a net loss of $5.3 million for the same period last year.

Net revenue on investments of $6.3 million for the second quarter was lower than the $25.6 million

recorded last year, mainly due to higher write-offs ($13.7 million) and lower realized gains on investments

($4.3 million).

The net change in unrealized appreciation of investments of $13.0 million for the quarter included the

following:

> a $1.2 million net fair value appreciation ($19.6 million net fair value depreciation for the same

period last year); and

> a reversal of net fair value depreciation due to net realized losses totalling $11.8 million (reversal

of net fair value appreciation due to net realized gains of $5.4 million for the same period last

year).

($ in millions) F2015 F2014 F2015 F2014

Net revenue on investments 6.3 25.6 20.1 43.7

Net change in unrealized appreciation

(depreciation) of investments 13.0 (25.0) 9.1 (26.0)




Net income (loss) from


Net income (loss) attributable to:

BDC's shareholder 12.8 (7.5) 15.6 2.0

Non-controlling interests 0.2 2.2 0.7 4.1

Net income (loss) from


Three months ended

September 30

Six months ended

September 30

11



The increase in operating and administrative expenses from last year was mainly due to higher staff

levels required to fully support the growth of Canadian companies.


For the six months ended September 30, 2014, Growth & Transition Capital recorded net income of

$16.3 million, higher than the $6.1 million recorded for the same period last year.

Net revenue on investments was $23.6 million lower than the $43.7 million recorded in the same period

last year, due to higher realized losses on investments ($25.5 million), offset by higher net interest

income as a result of portfolio growth ($0.4 million), and by higher fee and other income ($1.5 million).

The net change in unrealized appreciation of investments of $9.1 million for the six months ended

September 30, 2014, included the following:

> a $4.0 million net fair value depreciation ($19.5 million net fair value depreciation for the same

period last year); and

> a reversal of net fair value depreciation due to net realized losses totalling $13.1 million (reversal

of net fair value appreciation due to net realized gains of $6.5 million for the same period last

year).

The increase in operating and administrative expenses from last year was mainly due to higher planned

staff levels required to fully support the growth of entrepreneurs.

Venture Capital results

($ in millions) F2015 F2014 F2015 F2014

Net revenue (loss) on investments (5.8) (10.8) (5.2) 2.9


(depreciation) of investments 19.0 11.3 29.8 (1.4)

Net unrealized foreign exchange

gains (losses) on investments 9.0 (2.9) 2.8 2.9


financial instruments (6.7) 2.2 (1.7) (1.7)

Income (loss) before operating and

administrative expenses 15.5 (0.2) 25.7 2.7


Net income (loss) from Venture Capital 10.3 (5.2) 15.3 (7.5)


BDC's shareholder 11.8 (5.2) 17.0 (7.3)

Non-controlling interests (1.5) - (1.7) (0.2)

Net income (loss) from Venture Capital 10.3 (5.2) 15.3 (7.5)

Three months ended

September 30

Six months ended

September 30

12




During the second quarter of fiscal 2015, Venture Capital recorded a net income of $10.3 million,


Net loss on investments decreased by $5.0 million, primarily due to lower write-offs.

The net change in unrealized appreciation of investments of $19.0 million was $7.7 million higher than

the $11.3 million net change in unrealized appreciation recorded last year and included the following:

> a $14.3 million net fair value appreciation of the portfolio ($6.6 million fair value appreciation for

the same period last year); and

> a reversal of net fair value depreciation on divested investments and write-offs totalling

$4.7 million (a reversal of $4.7 million of net fair value depreciation for the same period last year).


For the six months ended September 30, 2014, Venture Capital recorded a $15.3 million net income,


Net loss on investments was $5.2 million for the six months ended September 30, 2014, compared to net

revenue on investments of $2.9 million for the same period last year. Net revenue on investments for the

six months ended September 30, 2013, was improved primarily by the divestiture of an investee

company.

The net change in unrealized appreciation of investments of $29.8 million for the six-month period ended

September 30, 2014, included the following:

> a $24.3 million net fair value appreciation of the portfolio ($5.3 million fair value appreciation for

the same period last year); and

> a reversal of net fair value depreciation on divested investments and write-offs totalling

$5.5 million (a reversal of $6.7 million of net fair value appreciation for the same period last year).

Net unrealized foreign exchange gains or losses on investments were due to foreign exchange

fluctuations on the U.S. dollar. BDC monitors currency fluctuations and uses foreign exchange contracts

to partially hedge U.S. dollar investments. As a result, net gains or losses on other financial instruments

partially offset amounts recognized due to currency fluctuations.

13



Consulting results


We continue to focus our efforts on the transformation of our consulting services. Therefore, as

anticipated, Consulting’s net loss was $5.8 million for the second quarter of fiscal 2015, higher than the

$3.8 million net loss recorded for the same quarter last year. The cumulative net loss for the six-month

period ended September 30, 2014, was $11.2 million, compared to $7.8 million for the same period last

year.

Revenues were $4.5 million and $8.6 million, respectively, for the second quarter and the first six months

of fiscal 2015, lower than the $5.7 million and $10.5 million recorded for the same period last year, as

BDC continued to identify and focus its efforts on offering services that will have the most positive impact

on clients and, as a result, discontinued some services.

On a year-to-date basis, operating and administrative expenses of $19.8 million were $1.5 million higher

than those recorded in the same period of fiscal 2014. The increase is mainly explained by the higher

level of staff needed to support the new business strategy and associated transformation program, with

the goal of increasing the competitiveness of small and medium-sized businesses.

Securitization results


Net income from Securitization for the second quarter of fiscal 2015 was $1.0 million, for a total of

$2.0 million for the six-month period ended September 30, 2014. These figures compare to net income

from Securitization of $1.8 million and $3.8 million, respectively, for the same periods last year.

($ in millions) F2015 F2014 F2015 F2014

Revenue 4.5 5.7 8.6 10.5


Net loss from Consulting (5.8) (3.8) (11.2) (7.8)

Three months ended

September 30

Six months ended

September 30

($ in millions) F2015 F2014 F2015 F2014





Net income from Securitization 1.0 1.8 2.0 3.8

Three months ended

September 30

Six months ended

September 30

14



The decrease in income was due to lower net interest and fee income as a result of a net reduction in the

asset-backed securities (ABS) portfolio and a decrease in the yield. The decrease in the ABS portfolio

was explained in part by the full repayment in October 2013 of all ABS issued under the Canadian

Secured Credit Facility.

Operating and administrative expenses for the three-month and six-month periods ended

September 30, 2014, were slightly higher than those reported for the same periods last year.

Venture Capital Action Plan results


During the second quarter of fiscal 2015, Venture Capital Action Plan (VCAP) recorded a net loss of $2.2

million, mostly as a result of a net change in unrealized depreciation of investments of $2.1 million. For

the six months ended September 30, 2014, VCAP recorded a net loss of $3.2 million compared to a net

loss of $0.6 million for the same period last year. These losses were anticipated early in the program.

On a year-to-date basis, operating and administrative expenses were $0.4 million, lower than those

reported for the same period last year.

($ in millions) F2015 F2014 F2015 F2014

Net revenue (loss) on investments 0.1 - 0.2 -


(depreciation) of investments (2.1) - (3.0) -

Income (loss) before operating and

administrative expenses (2.0) - (2.8) -


Net loss from Venture Capital Action Plan (2.2) (0.4) (3.2) (0.6)

Three months ended

September 30

Six months ended

September 30

15



Consolidated Statement of Financial Position and Cash Flows

As at September 30, 2014, total BDC assets amounted to $20.2 billion, an increase of $0.6 billion from

March 31, 2014, mainly due to the increase in loans.

At $17.7 billion, the loan portfolio represented BDC’s largest asset ($18.2 billion in gross portfolio and a

$0.5 billion allowance for credit losses). The gross loan portfolio grew by 2.8% in the first six months after

March 31, 2014.

As for BDC’s investment portfolios, the subordinate financing portfolio stood at $595.3 million, compared

to $576.7 million as at March 31, 2014. Net investment disbursements accounted for most of the increase

of this portfolio; however, this was partially offset by write-offs. The venture capital portfolio was $595.2

million at September 30, 2014, compared to $495.1 million as at March 31, 2014. The increase in this

portfolio was mainly due to investment disbursements and to higher net change in unrealized

appreciation. The venture capital action plan portfolio stood at $10.5 million, compared to $5.2 million as

at March 31, 2014. Investment disbursements accounted for most of the increase.

The asset-backed securities (ABS) portfolio stood at $380.8 million, compared to $336.5 million at

March 31, 2014. The increase in the portfolio was due to net disbursements of securities purchased

under the Funding Platform for Independent Lenders (F-PIL) program.

Derivative assets of $45.0 million and derivative liabilities of $14.6 million reflected the fair value of

derivative financial instruments as at September 30, 2014. Net derivative fair value decreased by

$13.4 million, compared to the fair value at March 31, 2014, primarily as the result of maturities and

redemptions, and a decrease in the fair value of foreign exchange contracts.

As at September 30, 2014, BDC recorded a net defined benefit asset of $51.5 million related to the

registered pension plan, and a net defined benefit liability of $202.1 million for the other plans, for a total

net defined benefit liability of $150.6 million. This represents an increase of $45.9 million compared to the

total net defined benefit liability as at March 31, 2014, primarily as the result of remeasurement losses on

the net defined benefit liability recorded during the six-month period ended September 30, 2014. Refer to

page 8 of this report for further information on remeasurements of net defined benefit asset or liability.

BDC holds cash and cash equivalents in accordance with its Treasury Risk Policy. The Bank’s liquidities,

which ensure funds are available to meet BDC’s cash outflows, totalled $678.4 million at September 30,

2014, compared to $676.5 million at March 31, 2014. For the six-month period ended September 30,

2014, cash flow used by investing activities amounted to $158.0 million as a result of net disbursements

of subordinate financing and venture capital investments, and ABS. Financing activities provided $443.0

million in cash flow, mainly as a result of the issuance of short-term notes, partially offset by the

repayment of long-term notes, while operating activities used $283.1 million, mainly due to the increase

in the loans portfolio.

At September 30, 2014, BDC funded its portfolios and liquidities with borrowings of $15.3 billion and total

equity of $4.5 billion. Borrowings comprised $14.7 billion in short-term notes and $0.6 billion in long-term

notes.


CONSOLIDATED FINANCIAL STATEMENTS (unaudited, in thousands of Canadian dollars)

17 Management’s Responsibility for Financial Information

18 Consolidated Statement of Financial Position

19 Consolidated Statement of Income

20 Consolidated Statement of Comprehensive Income

21 Consolidated Statement of Changes in Equity

23 Consolidated Statement of Cash Flows

24 Notes to the Consolidated Financial Statements

24 Note 1 BDC General Description 24 Note 2 Basis of Preparation 25 Note 3 Significant Accounting Policies

25 Note 4 Significant Accounting Judgements, Estimates and Assumptions

26 Note 5 Classification of Financial Instruments 27 Note 6 Fair Value of Financial Instruments 29 Note 7 Asset-Backed Securities 30 Note 8 Loans 31 Note 9 Subordinate Financing Investments 32 Note 10 Venture Capital Investments 33 Note 11 Venture Capital Action Plan Investments 33 Note 12 Share Capital 34 Note 13 Segmented Information 37 Note 14 Guarantees 37 Note 15 Commitments 39 Note 16 Related Party Transactions

17


MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL INFORMATION

Management is responsible for the preparation and fair presentation of these condensed quarterly Consolidated

Financial Statements in accordance with the Treasury Board of Canada Standard on Quarterly Financial Reports

for Crown Corporations, and for such internal controls as management determines are necessary to enable the

preparation of condensed quarterly Consolidated Financial Statements that are free from material misstatement.

Management is also responsible for ensuring all other information in this quarterly financial report is consistent,

where appropriate, with the quarterly Consolidated Financial Statements.

Based on our knowledge, these unaudited condensed quarterly Consolidated Financial Statements present fairly,

in all material respects, the financial position, results of operations and cash flows of the corporation, as at the date

of and for the periods presented in the condensed quarterly Consolidated Financial Statements.

Jean-René Halde President and Chief Executive Officer

Paul Buron, CPA, CA Executive Vice President and Chief Financial Officer

Montreal, Canada

November 6, 2014

Paul Buron, CPA, CAJean-René HaldePresident and Chief Executive Officer

18


CONSOLIDATED STATEMENT OF FINANCIAL POSITION (unaudited)

September 30, March 31,

(in thousands of Canadian dollars) Notes 2014 2014

ASSETS

Cash and cash equivalents 678,353 676,529

Derivative assets 44,976 54,501

Loans and investments

Asset-backed securities 7 380,834 336,477

Loans 8 17,731,257 17,241,064

Subordinate financing investments 9 595,304 576,677

Venture capital investments 10 595,200 495,096

Venture capital action plan investments 11 10,538 5,169

Total loans and investments 19,313,133 18,654,483

Property and equipment 23,576 26,418

Intangible assets 54,290 58,280

Net defined benefit asset 51,503 83,527

Other assets 16,632 16,219

Total assets 20,182,463 19,569,957

LIABILITIES AND EQUITY

Liabilities

Accounts payable and accrued liabilities 69,998 106,027

Derivative liabilities 14,595 10,706

Borrowings

Short-term notes 14,703,449 14,056,623

Long-term notes 631,978 775,340

Total borrowings 15,335,427 14,831,963

Net defined benefit liability 202,065 188,221

Other liabilities 39,233 42,991

Total liabilities 15,661,318 15,179,908

Equity

Share capital 12 2,138,400 2,138,400

Contributed surplus 27,778 27,778

Retained earnings 2,313,239 2,167,279

Accumulated other comprehensive income 3,591 5,453

Equity attributable to BDC's shareholder 4,483,008 4,338,910

Non-controlling interests 38,137 51,139

Total equity 4,521,145 4,390,049

Total liabilities and equity 20,182,463 19,569,957

Guarantees (Note 14)

Commitments (Note 15)

The accompanying notes are an integral part of these Consolidated Financial Statements.

19


CONSOLIDATED STATEMENT OF INCOME (unaudited)

(in thousands of Canadian dollars) 2014 2013 2014 2013

Interest income 267,517 253,794 531,422 503,947

Interest expense 34,800 35,328 67,809 68,678

Net interest income 232,717 218,466 463,613 435,269

NET_REAL_INV Net realized gains (losses) on investments (19,903) (6,869) (25,986) 7,034

Consulting revenue 4,486 5,727 8,605 10,522

Fee and other income 12,476 12,458 23,042 21,885

Net realized gains (losses) on other financial instruments 2,038 (1,600) 1,075 (3,420)

Net revenue 231,814 228,182 470,349 471,290

Impairment reversals (losses) on loans (19,285) (27,255) (36,691) (48,016)

Net change in unrealized appreciation (depreciation) of investments 29,948 (13,725) 35,893 (27,355)

Net unrealized foreign exchange gains (losses) on investments 8,960 (2,890) 2,785 2,887

Net unrealized gains (losses) on other financial instruments (9,060) 3,890 (3,854) 1,899

Income before operating and administrative expenses 242,377 188,202 468,482 400,705

Salaries and benefits 73,942 71,584 145,970 141,185

Premises and equipment 12,119 9,842 22,770 19,871

Other expenses 19,250 20,384 40,905 39,489

Operating and administrative expenses 105,311 101,810 209,645 200,545

Net income 137,066 86,392 258,837 200,160

Net income attributable to:

BDC's shareholder 138,354 84,234 259,773 196,339

Non-controlling interests (1,288) 2,158 (936) 3,821

Net income 137,066 86,392 258,837 200,160

The accompanying notes are an integral part of these Consolidated Financial Statements and Note 13 provides additional information on

segmented net income.

Six months endedThree months ended

September 30September 30

20


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (unaudited)


Net income 137,066 86,392 258,837 200,160


Items that may be reclassified subsequently to net income

Net change in unrealized gains (losses) on available-for-sale assets (415) (40) (872) (933)

OCI_UNREAL_CFH Net unrealized gains (losses) on cash flow hedges (322) 16 (752) (1,655)

OCI_CFH_RECLASS Reclassification to net income of losses (gains) on cash flow hedges (119) (366) (238) (768)

Net change in unrealized gains (losses) on cash flow hedges (441) (350) (990) (2,423)

Total items that may be reclassified subsequently to net income (856) (390) (1,862) (3,356)

Items that will not be reclassified to net income

OCI_PENSION Remeasurements of net defined benefit asset or liability (33,360) 52,739 (59,200) 87,994

Other comprehensive income (loss) (34,216) 52,349 (61,062) 84,638

Total comprehensive income 102,850 138,741 197,775 284,798

Total comprehensive income attributable to:

BDC's shareholder 104,138 136,583 198,711 280,977

Non-controlling interests (1,288) 2,158 (936) 3,821

Total comprehensive income 102,850 138,741 197,775 284,798


September 30 September 30

Six months endedThree months ended

21


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the three-month period ended September 30 (unaudited)

Equity

attributable Non-

Share Contributed Retained Available- Cash flow to BDC's controlling Total

(in thousands of Canadian dollars) capital surplus earnings for-sale assets hedges Total shareholder interests equity

Balance at June 30, 2014 2,138,400 27,778 2,208,245 1,750 2,697 4,447 4,378,870 41,945 4,420,815

Total comprehensive income

Net income 138,354 138,354 (1,288) 137,066



Net change in unrealized gains (losses) on cash flow hedges (441) (441) (441) (441)

Remeasurements of net defined benefit asset or liability (33,360) (33,360) (33,360)

Other comprehensive income (loss) - - (33,360) (415) (441) (856) (34,216) - (34,216)

Total comprehensive income - - 104,994 (415) (441) (856) 104,138 (1,288) 102,850

Dividends on common shares - - -

Distributions to non-controlling interests (4,783) (4,783)

Capital injections from non-controlling interests 2,263 2,263

Transactions with owner, recorded directly in equity - - - - - - - (2,520) (2,520)

Balance as at September 30, 2014 2,138,400 27,778 2,313,239 1,335 2,256 3,591 4,483,008 38,137 4,521,145

Equity

attributable Non-



Balance at June 30, 2013 2,088,400 27,778 1,835,923 1,024 4,578 5,602 3,957,703 74,559 4,032,262


Net income 84,234 84,234 2,158 86,392




Remeasurements of net defined benefit asset or liability 52,739 52,739 52,739

Other comprehensive income (loss) - - 52,739 (40) (350) (390) 52,349 - 52,349

Total comprehensive income - - 136,973 (40) (350) (390) 136,583 2,158 138,741

Dividends on common shares - - -


Capital injections from non-controlling interests 648 648

Transactions with owner, recorded directly in equity - - - - - - - (16,816) (16,816)

Balance as at September 30, 2013 2,088,400 27,778 1,972,896 984 4,228 5,212 4,094,286 59,901 4,154,187


Accumulated other comprehensive income (loss)


22


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the six-month period ended September 30 (unaudited)

Equity

attributable Non-



Balance at March 31, 2014 2,138,400 27,778 2,167,279 2,207 3,246 5,453 4,338,910 51,139 4,390,049


Net income 259,773 259,773 (936) 258,837




Remeasurements of net defined benefit asset or liability (59,200) (59,200) (59,200)

Other comprehensive income (loss) - - (59,200) (872) (990) (1,862) (61,062) - (61,062)

Total comprehensive income - - 200,573 (872) (990) (1,862) 198,711 (936) 197,775

Dividends on common shares (54,613) (54,613) (54,613)



Transactions with owner, recorded directly in equity - - (54,613) - - - (54,613) (12,066) (66,679)

Balance as at September 30, 2014 2,138,400 27,778 2,313,239 1,335 2,256 3,591 4,483,008 38,137 4,521,145

Equity

attributable Non-



Balance at March 31, 2013 2,088,400 27,778 1,748,156 1,917 6,651 8,568 3,872,902 82,773 3,955,675


Net income 196,339 196,339 3,821 200,160

Other comprehensive income


Net change in unrealized gains (losses) on cash flow hedges (2,423) (2,423) (2,423) (2,423)

Remeasurements of net defined benefit asset or liability 87,994 87,994 87,994

Other comprehensive income (loss) - - 87,994 (933) (2,423) (3,356) 84,638 - 84,638

Total comprehensive income - - 284,333 (933) (2,423) (3,356) 280,977 3,821 284,798

Dividends on common shares (59,593) (59,593) (59,593)



Transactions with owner, recorded directly in equity - - (59,593) - - - (59,593) (26,693) (86,286)

Balance as at September 30, 2013 2,088,400 27,778 1,972,896 984 4,228 5,212 4,094,286 59,901 4,154,187




23


CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)


Operating activities

Net income 137,066 86,392 258,837 200,160

Adjustments to determine net cash flows

Interest income (267,517) (253,794) (531,422) (503,947)

Interest expense 34,800 35,328 67,809 68,678

Net realized losses (gains) on investments 19,903 6,869 25,986 (7,034)

Impairment losses (reversals) on loans 19,285 27,255 36,691 48,016

Net change in unrealized depreciation (appreciation) on investments (29,948) 13,725 (35,893) 27,355

Net unrealized foreign exchange losses (gains) on investments (8,960) 2,890 (2,785) (2,887)

Net unrealized losses (gains) on other financial instruments 9,060 (3,890) 3,854 (1,899)

Defined benefits funding in excess of amounts expensed (5,742) (9,486) (13,332) (22,566)

Depreciation of property and equipment, and amortization of intangible assets 4,727 2,789 8,344 5,746

Loss (gain) on disposal of property and equipment - - 9 -

Other (3,496) (2,326) (858) (4,208)

Interest expense paid (39,478) (40,682) (68,050) (69,003)

Interest income received 265,621 256,388 524,160 504,112

Disbursements for loans (1,110,480) (944,971) (1,981,681) (2,130,906)

Repayments of loans 752,423 632,976 1,465,386 1,326,704

Changes in operating assets and liabilities

Net change in accounts payable and accrued liabilities (45,377) (31,440) (36,029) (24,366)

Net change in other assets and other liabilities (1,568) 8,152 (4,171) 2,034

Net cash flows provided (used) by operating activities (269,681) (213,825) (283,145) (584,011)

Investing activities

Disbursements for asset-backed securities (51,064) (33,379) (107,655) (90,959)

Repayments and proceeds on sale of asset-backed securities 29,108 66,122 62,456 179,471

Disbursements for subordinate financing investments (42,704) (62,808) (88,330) (91,441)

Repayments of subordinate financing investments 20,882 45,271 58,974 65,350

Disbursements for venture capital investments (49,613) (30,193) (88,377) (62,340)

Proceeds on sale of venture capital investments 3,511 27,077 14,756 76,109

Disbursements for venture capital action plan investments (7,776) - (8,341) -

Acquisition of property and equipment (558) (1,847) (1,056) (4,603)

Proceeds from disposal of property and equipment - - 1 -

Acquisition of intangible assets - (8,161) (466) (16,047)

Net cash flows provided (used) by investing activities (98,214) 2,082 (158,038) 55,540

Financing activities

Net change in short-term notes 405,350 229,061 646,200 650,797

Issue of long-term notes 49,700 32,900 89,100 107,435

Repayment of long-term notes (90,451) (35,385) (225,614) (73,367)

Distributions to non-controlling interests (4,783) (17,464) (14,421) (28,381)

Capital injections from non-controlling interests 2,263 648 2,355 1,688

Dividends paid on common shares - - (54,613) (59,593)

Net cash flows provided (used) by financing activities 362,079 209,760 443,007 598,579

Net increase (decrease) in cash and cash equivalents (5,816) (1,983) 1,824 70,108

Cash and cash equivalents at beginning of period 684,169 773,769 676,529 701,678

Cash and cash equivalents at end of period 678,353 771,786 678,353 771,786


September 30 September 30

Three months ended Six months ended

24


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited, in thousands of Canadian dollars)

1. BDC GENERAL DESCRIPTION The Business Development Bank of Canada is a Crown corporation that was established by an Act of Parliament on

December 20, 1974, as the Federal Business Development Bank and continued under its current name by an Act of

Parliament that was enacted on July 13, 1995. The Business Development Bank of Canada is incorporated in

Canada and wholly owned by the Government of Canada.

The objectives of the Business Development Bank of Canada and its subsidiaries (together, BDC) are to promote and

assist in the establishment and development of business enterprises in Canada, with a focus on small and medium-

sized enterprises, by providing a range of complementary lending and investment services, as well as consulting

services. BDC offers Canadian companies services tailored to meet their current needs while earning an appropriate

return on equity, which is used to further BDC’s activities. BDC does not receive appropriations from the Government

of Canada.

2. BASIS OF PREPARATION

BDC’s condensed quarterly Consolidated Financial Statements are in compliance with the Standard on Quarterly

Financial Reports for Crown Corporations, as required by the Financial Administration Act and issued by the Treasury

Board of Canada Secretariat.

BDC’s condensed quarterly Consolidated Financial Statements follow the same basis of preparation as our audited

Consolidated Financial Statements for the year ended March 31, 2014. For complete information on the basis of

preparation, refer to page 57 of our 2014 Annual Report.

These condensed quarterly Consolidated Financial Statements have been prepared using International Financial

Reporting Standards (IFRS). The condensed quarterly Consolidated Financial Statements have also been prepared

in accordance with the accounting policies BDC expects to use in its annual Consolidated Financial Statements for

the year ending March 31, 2015. If BDC changes the application of these policies, it may result in a restatement of

these condensed quarterly Consolidated Financial Statements.

These condensed quarterly Consolidated Financial Statements have been prepared using International Financial

Reporting Standards (IFRS) and were approved for issue by the Board of Directors on November 6, 2014.

25



3. SIGNIFICANT ACCOUNTING POLICIES

BDC’s condensed quarterly Consolidated Financial Statements follow the same accounting policies as our audited

Consolidated Financial Statements for the year ended March 31, 2014. These policies have been consistently applied

to all periods presented in these condensed quarterly Consolidated Financial Statements and have been applied

consistently by all entities consolidated by BDC.

These condensed quarterly Consolidated Financial Statements must be read in conjunction with BDC’s 2014 Annual

Report and the accompanying notes, as set out on pages 57 to 110 of our 2014 Annual Report.

4. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES

AND ASSUMPTIONS

Preparation of the quarterly Consolidated Financial Statements using IFRS requires management to make

judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of

assets, liabilities, income and expenses.

Significant changes in the underlying assumptions could result in significant changes to these estimates.

Consequently, management reviews these assumptions regularly. Revisions to accounting estimates are recognized

in the period in which the estimates are revised and in any future period affected.

For information about the significant judgements, estimates and assumptions that have the most significant effect on

the amounts recognized in the condensed quarterly Consolidated Financial Statements, refer to page 68 of our 2014

Annual Report.

26



5. CLASSIFICATION OF FINANCIAL INSTRUMENTS

The following table summarizes the classification of BDC’s financial instruments as at September 30, 2014, and

March 31, 2014.

September 30, 2014

Note

Held-for-

trading

Designated as

FVTPL

Available-

for-sale

Cash flow

hedges

Loans and

receivables

Financial

liabilities Total

Financial assetsCash and cash equivalents 678,353 678,353 Derivative assets 43,188 1,788 44,976 Asset-backed securities 7 4,455 376,379 380,834 Loans 8 17,731,257 17,731,257 Subordinate financing investments 9 595,304 595,304 Venture capital investments 10 595,200 595,200 Venture capital action plan investments 11 10,538 10,538

Other assets(2) 9,063 9,063

Total financial assets 43,188 1,205,497 376,379 1,788 18,418,673 - 20,045,525

Financial liabilitiesAccounts payable and accrued liabilities 69,998 69,998 Derivative liabilities 14,595 14,595 Short-term notes 14,703,449 14,703,449 Long-term notes 402,448 229,530 631,978

Other liabilities(2) 26,819 26,819

Total financial liabilities 14,595 402,448 - - - 15,029,796 15,446,839

March 31, 2014

Note

Held-for-

trading

Designated as

FVTPL

Available-

for-sale

Cash flow

hedges

Loans and

receivables

Financial

liabilities Total

Financial assets

Cash and cash equivalents 676,529 676,529

Derivative assets 51,717 2,784 54,501

Asset-backed securities 7 4,750 331,727 336,477

Loans 8 17,241,064 17,241,064


Venture capital investments 10 495,096 495,096

Venture capital action plan investments 11 5,169 5,169

Other assets(2) 9,265 9,265

Total financial assets 51,717 1,081,692 331,727 2,784 17,926,858 - 19,394,778

Financial liabilities

Accounts payable and accrued liabilities 106,027 106,027


Short-term notes 14,056,623 14,056,623

Long-term notes 500,794 274,546 775,340

Other liabilities(2) 31,617 31,617

Total financial liabilities 10,706 500,794 - - - 14,468,813 14,980,313 (1)

Fair value through profit or loss.(2)

Certain items within the other assets and other liabilities categories on the Consolidated Statement of Financial Position are not considered to be financial instruments.

Measured at fair value Measured at amortized cost

FVTPL(1)

FVTPL(1)

Measured at fair value Measured at amortized cost

27



September 30,

2014

Total

Level 1 Level 2 Level 3 fair value

Assets


Asset-backed securities 380,834 380,834


Venture capital investments 6,759 588,441 595,200

Venture capital action plan investments 10,538 10,538

7,443 425,810 1,193,599 1,626,852

Liabilities


Long-term notes designated as FVTPL(1)402,448 402,448

- 417,043 - 417,043 (1)

Fair value through profit or loss.

Fair value measurements using

6. FAIR VALUE OF FINANCIAL INSTRUMENTS

All financial instruments measured at fair value must be categorized into one of three hierarchy levels for disclosure

purposes. Each level is based on the observability of the inputs used to measure the fair value of assets and liabilities

and is defined below:

> level 1—fair values based on quoted prices (unadjusted) observed in active markets for identical assets or

liabilities;

> level 2—fair values based on inputs other than quoted prices in active markets that are either directly or

indirectly observable; and

> level 3—fair values based on valuation techniques with one or more significant unobservable market inputs.

There were no transfers between levels 1 and 2 or between levels 2 and 3 in the reporting periods. BDC’s policy is to

recognize transfers between levels 1 and 3 when private investments become publicly traded or public investments

become private investments during the reporting periods.

28



The following table presents the changes in fair value measurement for financial instruments included in level 3 of the

fair value hierarchy.

March 31,

2014

Total

Level 1 Level 2 Level 3 fair value

Assets




Venture capital investments 6,058 489,038 495,096

Venture capital action plan investments 5,169 5,169

6,742 390,978 1,070,200 1,467,920

Liabilities


Long-term notes designated as FVTPL(1)500,794 500,794

- 511,500 - 511,500 (1)

Fair value through profit or loss.

Fair value measurements using

September 30,

2014

Subordinate Venture Venture capital

financing capital action plan

investments investments investments Total

Fair value at April 1, 2014 575,993 489,038 5,169 1,070,200

Net realized gains (losses) on investments (19,760) (6,028) - (25,788)

Net change in unrealized

appreciation (depreciation) of investments 9,079 30,835 (2,972) 36,942


gains (losses) on investments - 2,807 - 2,807

Disbursements for investments 88,330 88,377 8,341 185,048

Repayments of investments and other (59,022) (12,717) - (71,739)

Transfers from level 3 to level 1 - (3,871) - (3,871)

Fair value at September 30, 2014 594,620 588,441 10,538 1,193,599

29



7. ASSET-BACKED SECURITIES

No asset-backed securities were impaired as at September 30 or March 31, 2014.

March 31,

2014

Subordinate Venture Venture capital

financing capital action plan

investments investments investments Total

Fair value at April 1, 2013 556,031 424,047 - 980,078

Net realized gains (losses) on investments (9,970) (22,027) - (31,997)

Net change in unrealized

appreciation (depreciation) of investments (16,582) 21,762 (533) 4,647


gains (losses) on investments - 13,454 - 13,454

Disbursements for investments 156,239 118,274 5,702 280,215

Repayments of investments and other (109,725) (62,718) - (172,443)

Transfers from level 3 to level 1 - (3,754) - (3,754)

Fair value at March 31, 2014 575,993 489,038 5,169 1,070,200

September 30,

2014

March 31,

2014

Available-for-sale

Principal amount 375,047 329,521

Cumulative fair value appreciation (depreciation) 1,332 2,206

Carrying value 376,379 331,727

Yield 2.16% 2.24%

Fair value through profit or loss

Principal amount 4,372 4,651

Cumulative fair value appreciation (depreciation) 83 99

Carrying value 4,455 4,750

Yield 7.82% 8.06%


30



8. LOANS

The following table provides loans outstanding by contractual maturity date.

Allowance for credit losses

Concentrations of total loans outstanding

Within 1 year 1 to 5 years Over 5 years

Total gross

amount

Collective

allowance

Individual

allowance

Total

allowance

Total net

amount

Performing 155,638 1,936,977 15,671,462 17,764,077 (340,000) - (340,000) 17,424,077

Impaired 9,731 57,957 413,741 481,429 - (174,249) (174,249) 307,180

Loans as at September 30, 2014 165,369 1,994,934 16,085,203 18,245,506 (340,000) (174,249) (514,249) 17,731,257

Within 1 year 1 to 5 years Over 5 years

Total gross

amount

Collective

allowance

Individual

allowance

Total

allowance

Total net

amount

Performing 166,594 1,865,370 15,241,401 17,273,365 (340,000) - (340,000) 16,933,365

Impaired 9,226 49,330 417,393 475,949 - (168,250) (168,250) 307,699

Loans as at March 31, 2014 175,820 1,914,700 15,658,794 17,749,314 (340,000) (168,250) (508,250) 17,241,064

Balance at beginning of period 508,250 538,338

Write-offs (29,895) (103,258)

Effect of discounting (6,423) (12,485)

Recoveries and other 5,626 12,774

477,558 435,369

Impairment losses (reversals) on loans 36,691 72,881

Balance at end of period 514,249 508,250

September 30,

2014

March 31,

2014

Geographic distribution

Newfoundland and Labrador 764,911 741,843

Prince Edward Island 47,960 44,517

Nova Scotia 464,664 447,837

New Brunswick 467,526 486,006

Quebec 6,073,878 5,977,771

Ontario 4,747,936 4,681,243

Manitoba 525,977 502,059

Saskatchewan 589,527 532,345

Alberta 2,453,112 2,325,621

British Columbia 1,983,991 1,881,972

Yukon 96,901 97,598

Northwest Territories and Nunavut 29,123 30,502

Total loans outstanding 18,245,506 17,749,314

March 31,

2014

September 30,

2014

31



9. SUBORDINATE FINANCING INVESTMENTS

BDC maintains a medium- to high-risk portfolio of subordinate financing investments. The following table summarizes

outstanding subordinate financing investments by their contractual maturity date.

Concentrations of total subordinate financing investments

Industry sector

Manufacturing 4,045,825 4,025,056

Wholesale and retail trade 3,658,716 3,578,289

Tourism 2,421,748 2,305,724

Service industries 2,355,370 2,278,685

Commercial properties 2,138,916 2,050,634

Construction 1,526,644 1,478,046

Transportation and storage 1,051,978 1,023,372

Other 1,046,309 1,009,508

Total loans outstanding 18,245,506 17,749,314

March 31,

2014

September 30,

2014

Within 1 year 1 to 5 years Over 5 years Total cost

Total

fair value

As at September 30, 2014 88,411 450,867 71,610 610,888 595,304

As at March 31, 2014 77,268 442,633 81,477 601,378 576,677

Geographic distribution Fair value Cost Fair value Cost

Newfoundland and Labrador 7,818 6,698 8,033 6,697

Nova Scotia 12,855 13,112 13,297 14,636

New Brunswick 13,749 13,189 11,756 11,806

Quebec 244,232 260,252 249,660 271,927

Ontario 187,608 186,612 182,588 186,901

Manitoba 8,449 6,568 8,050 6,062

Saskatchewan 4,907 3,536 5,108 3,659

Alberta 86,042 90,074 72,071 73,103

British Columbia 25,742 26,678 22,173 22,417

Yukon 2,692 2,914 2,715 2,915

Northwest Territories and Nunavut 1,210 1,255 1,226 1,255

Subordinate financing investments 595,304 610,888 576,677 601,378

September 30,

2014

March 31,

2014

32



10. VENTURE CAPITAL INVESTMENTS

BDC maintains a high-risk portfolio of venture capital investments that is focused on early-stage and fast-growing

technology companies having promising positions in their respective marketplaces and strong growth potential. The

concentrations and investment types of venture capital investments are listed below.

Industry sector Fair value Cost Fair value Cost

Manufacturing 216,075 215,183 204,022 205,280

Business services 119,927 129,988 114,686 129,493

Wholesale and retail trade 94,218 94,562 97,007 99,523

Mining, and oil and gas extraction 45,137 45,565 34,524 35,346

Construction 42,640 44,530 44,004 46,798

Information industries 25,186 27,209 21,079 22,552

Tourism 11,895 11,104 12,808 11,882

Transportation and storage 9,964 10,617 9,426 10,138

Educational services 5,324 5,285 7,130 7,674

Real estate, and rental and leasing 1,836 1,867 8,918 8,539

Other 23,102 24,978 23,073 24,153

Subordinate financing investments 595,304 610,888 576,677 601,378

September 30,

2014 March 31,

2014

Industry sector Fair value Cost Fair value Cost

Information technology 139,391 136,084 106,228 114,000

Electronics 82,167 82,619 77,976 78,241

Biotechnology and pharmacology 65,304 70,958 53,383 62,834

Medical and health 30,273 40,011 33,765 42,485

Communications 27,118 24,045 25,872 24,282

Energy 14,381 18,786 8,259 16,065

Industrial 13,450 17,592 9,690 14,042

Other 2,694 2,112 500 500

Total direct investments 374,778 392,207 315,673 352,449

Funds 220,422 209,931 179,423 182,173

Venture capital investments 595,200 602,138 495,096 534,622

September 30,

2014 March 31,

2014

Investment type Fair value Cost Fair value Cost

Common shares 39,121 76,601 29,340 68,745

Preferred shares 296,738 275,036 248,090 243,132

Debentures 38,919 40,570 38,243 40,572

Total direct investments 374,778 392,207 315,673 352,449

Funds 220,422 209,931 179,423 182,173

Venture capital investments 595,200 602,138 495,096 534,622

September 30,

2014 March 31,

2014

33



11. VENTURE CAPITAL ACTION PLAN INVESTMENTS

Venture Capital Action Plan invests primarily in early-stage and mid-stage venture capital funds, and directly in

companies across Canada. Venture Capital Action Plan supports the creation of large private sector-led funds of

funds and also assists existing high-performing funds in partnership with institutional investors, corporate strategic

investors and interested provinces.

At September 30, 2014, the fair value of venture capital action plan investments stood at $10,538 ($5,169 at March

31, 2014), and their cost was $14,042 ($5,702 at March 31, 2014).

12. SHARE CAPITAL

An unlimited number of common shares, having a par value of $100 each, is authorized. As at September 30 and

March 31, 2014, there were 21,384,000 common shares outstanding.

Statutory limitations

As per the BDC Act, the debt-to-equity ratio cannot exceed 12:1. In addition, the paid-in capital, the contributed

surplus and any proceeds that have been prescribed as equity (such as hybrid capital instruments) must not exceed

$3.0 billion. As at September 30, 2014, and March 31, 2014, BDC met both of these statutory limitation requirements.

Capital adequacy

Treasury Board of Canada Secretariat provides guidelines to BDC on its capital adequacy ratios. BDC must maintain

overall capital and allowance for credit losses sufficient to ensure that BDC can withstand unfavourable economic

circumstances without requiring additional government funding. During the six-month period ended

September 30, 2014, and for the fiscal year ended March 31, 2014, BDC complied with its capital adequacy

guidelines.

34



13. SEGMENTED INFORMATION BDC has six reportable segments, as described below, which are the Bank’s business lines. Each business line offers

different products and services, and is managed separately based on BDC’s management and internal reporting

structure.

The following summary describes the operations of each of the Bank’s reportable segments.

> Financing provides secured, partially secured and unsecured loans with a focus on small and medium-sized

enterprises across Canada.

> Growth & Transition Capital provides flexible debt with or without convertible features and equity-type

financing.

> Venture Capital provides investments to cover every stage of a technology-based company’s development

cycle, from seed funding to expansion. BDC also makes indirect investments via venture capital investment

funds.

> Consulting provides consulting services, group programs and other services related to business activities.

> Securitization purchases investments in asset-backed securities through the Funding Platform for

Independent Lenders (F-PIL, formerly known as the Multi-Seller Platform for Small Originators) and until

October 2013 managed the Canadian Secured Credit Facility investment portfolio. These securities are

backed by vehicle and equipment loans and leases, as well as dealer floor plan loans.

> Venture Capital Action Plan supports the creation of large private sector-led funds of funds and also assists

existing high-performing funds in partnership with institutional investors, corporate strategic investors and

interested provinces.

The assumptions and methodologies used in BDC’s reporting framework are periodically reviewed by management to

ensure they remain valid. BDC’s main allocation methods are described below.

Interest expense is allocated to each operating segment based on its business portfolio and the capital attributed to

the segment. The attribution of capital to BDC’s business segments is maintained in accordance with the capital

adequacy ratios provided by Treasury Board of Canada Secretariat and is consistently aligned with the economic

risks of each specific business segment.

Operating and administrative expenses include costs incurred directly by the business segments. Indirect costs

incurred at the enterprise level are attributed to each segment using management’s internal reporting framework.

Loan and investment portfolios are managed separately based on BDC’s business segments. None of the other

assets or liabilities are managed by segment.

35



The following tables present financial information regarding the results of each reportable segment.

Three months ended

September 30, 2014

BDC Financing

Growth &

Transition

Capital

Venture

Capital Consulting Securitization

Venture Capital

Action Plan

Interest income 267,517 251,641 13,817 - - 2,059 -

Interest expense 34,800 32,342 1,886 - - 572 -

Net interest income 232,717 219,299 11,931 - - 1,487 -

Net realized gains (losses) on investments (19,903) - (13,542) (6,361) - - -

Consulting revenue 4,486 - - - 4,486 - -

Fee and other income 12,476 4,035 7,888 458 - 2 93

Net realized gains (losses) on other financial instruments 2,038 604 - 1,434 - - -

Net revenue (loss) 231,814 223,938 6,277 (4,469) 4,486 1,489 93

Impairment reversals (losses) on loans (19,285) (19,285) - - - - -

Net change in unrealized appreciation (depreciation) of investments 29,948 - 13,031 19,042 - (13) (2,112)

Net unrealized foreign exchange gains (losses) on investments 8,960 - - 8,960 - - -

Net unrealized gains (losses) on other financial instruments (9,060) (970) - (8,090) - - -

Income (loss) before operating and administrative expenses 242,377 203,683 19,308 15,443 4,486 1,476 (2,019)

Salaries and benefits 73,942 58,223 5,062 3,761 6,328 402 166

Premises and equipment 12,119 10,729 375 418 563 19 15

Other expenses 19,250 13,968 815 1,001 3,401 43 22

Operating and administrative expenses 105,311 82,920 6,252 5,180 10,292 464 203

Net income (loss) 137,066 120,763 13,056 10,263 (5,806) 1,012 (2,222)


BDC's shareholder 138,354 120,763 12,825 11,782 (5,806) 1,012 (2,222)

Non-controlling interests (1,288) - 231 (1,519) - - -

Net income (loss) 137,066 120,763 13,056 10,263 (5,806) 1,012 (2,222)

Business segment portfolio at end of period 19,313,133 17,731,257 595,304 595,200 - 380,834 10,538

Three months ended

September 30, 2013

BDC Financing

Growth &

Transition

Capital

Venture


Venture Capital

Action Plan

Interest income 253,794 236,406 15,097 - - 2,291 -



Net realized gains (losses) on investments (6,869) - 4,798 (11,667) - - -


Fee and other income 12,458 3,867 7,714 824 - 53 -

Net realized gains (losses) on other financial instruments (1,600) 367 - (1,967) - - -

Net revenue (loss) 228,182 207,554 25,615 (12,810) 5,727 2,096 -


Net change in unrealized appreciation (depreciation) of investments (13,725) - (24,974) 11,261 - (12) -

Net unrealized foreign exchange gains (losses) on investments (2,890) - - (2,890) - - -

Net unrealized gains (losses) on other financial instruments 3,890 (340) - 4,230 - - -

Income (loss) before operating and administrative expenses 188,202 179,959 641 (209) 5,727 2,084 -


Premises and equipment 9,842 8,648 309 394 472 19 -

Other expenses 20,384 15,282 587 1,007 3,385 48 75


Net income (loss) 86,392 99,319 (5,298) (5,192) (3,788) 1,748 (397)


BDC's shareholder 84,234 99,319 (7,477) (5,171) (3,788) 1,748 (397)

Non-controlling interests 2,158 - 2,179 (21) - - -

Net income (loss) 86,392 99,319 (5,298) (5,192) (3,788) 1,748 (397)

Business segment portfolio at end of period 17,988,294 16,631,056 563,127 446,126 - 347,985 -

36



Six months ended

September 30, 2014

BDC Financing

Growth &

Transition

Capital

Venture


Venture Capital

Action Plan

Interest income 531,422 497,921 29,479 - - 4,022 -

Interest expense 67,809 62,935 3,791 - - 1,083 -


Net realized gains (losses) on investments (25,986) - (19,760) (6,226) - - -


Fee and other income 23,042 7,736 14,138 969 - 3 196

Net realized gains (losses) on other financial instruments 1,075 240 - 835 - - -

Net revenue (loss) 470,349 442,962 20,066 (4,422) 8,605 2,942 196


Net change in unrealized appreciation (depreciation) of investments 35,893 - 9,079 29,802 - (16) (2,972)


Net unrealized gains (losses) on other financial instruments (3,854) (1,329) - (2,525) - - -

Income (loss) before operating and administrative expenses 468,482 404,942 29,145 25,640 8,605 2,926 (2,776)


Premises and equipment 22,770 20,064 714 826 1,097 38 31

Other expenses 40,905 30,681 1,507 2,103 6,428 116 70


Net income (loss) 258,837 239,654 16,279 15,274 (11,178) 2,020 (3,212)


BDC's shareholder 259,773 239,654 15,558 16,931 (11,178) 2,020 (3,212)

Non-controlling interests (936) - 721 (1,657) - - -

Net income (loss) 258,837 239,654 16,279 15,274 (11,178) 2,020 (3,212)

Business segment portfolio at end of period 19,313,133 17,731,257 595,304 595,200 - 380,834 10,538

Six months ended

September 30, 2013

BDC Financing

Growth &

Transition

Capital

Venture


Venture Capital

Action Plan

Interest income 503,947 469,729 29,291 - - 4,927 -



Net realized gains (losses) on investments 7,034 - 5,787 1,247 - - -


Fee and other income 21,885 7,405 12,676 1,693 - 111 -

Net realized gains (losses) on other financial instruments (3,420) 768 - (4,188) - - -

Net revenue (loss) 471,290 413,827 43,747 (1,248) 10,522 4,442 -


Net change in unrealized appreciation (depreciation) of investments (27,355) - (26,051) (1,351) - 47 -


Net unrealized gains (losses) on other financial instruments 1,899 (506) - 2,405 - - -

Income (loss) before operating and administrative expenses 400,705 365,305 17,696 2,693 10,522 4,489 -


Premises and equipment 19,871 17,476 624 789 944 38 -

Other expenses 39,489 29,118 1,241 2,377 6,521 84 148


Net income (loss) 200,160 206,235 6,073 (7,516) (7,806) 3,755 (581)


BDC's shareholder 196,339 206,235 2,009 (7,273) (7,806) 3,755 (581)

Non-controlling interests 3,821 - 4,064 (243) - - -

Net income (loss) 200,160 206,235 6,073 (7,516) (7,806) 3,755 (581)

Business segment portfolio at end of period 17,988,294 16,631,056 563,127 446,126 - 347,985 -

37



14. GUARANTEES

BDC issues “letters of credit and loan guarantees” (guarantees) to support businesses. Those guarantees represent

BDC’s obligation to make payments to third parties if clients are unable to meet their contractual commitments. The

maximum amount payable under the guarantees totalled $27.4 million as at September 30, 2014 ($27.6 million at

March 31, 2014).

15. COMMITMENTS

Loans

The undisbursed amount of authorized loans was $2,338,917 at September 30, 2014 ($344,712 fixed rate;

$1,994,205 floating rate) and is expected to be disbursed within the next 12 months. The weighted average effective

interest rate was 4.66% on loan commitments (4.78% at March 31, 2014). The following tables present undisbursed

amounts of authorized loans, by location and industry.

Commitments, by geographic distribution

Newfoundland and Labrador 72,882 64,956

Prince Edward Island 2,332 4,448

Nova Scotia 54,752 60,085


Quebec 525,066 547,558

Ontario 763,185 500,665

Manitoba 64,448 56,729

Saskatchewan 106,303 96,904

Alberta 546,763 352,070

British Columbia 176,366 191,288

Yukon, Northwest Territories and Nunavut 1,378 2,234

Total 2,338,917 1,896,622

Commitments, by industry sector

Manufacturing 491,932 404,133

Tourism 320,243 263,457

Wholesale and retail trade 316,952 259,707

Construction 295,100 247,274

Service industries 247,567 228,533

Transportation and storage 160,260 121,206

Commercial properties 121,811 130,645

Other 385,052 241,667

Total 2,338,917 1,896,622

March 31,

2014

March 31,

2014

September 30,

2014

September 30,

2014

38



Subordinate financing

The undisbursed amount of authorized investments was $67,447 at September 30, 2014 ($37,493 fixed rate; $29,954

floating rate) and is expected to be disbursed within the next 12 months. The weighted average effective interest rate

(excluding non-interest returns) was 10.41% on investment commitments (8.83% at March 31, 2014). The following

tables present undisbursed amounts of authorized investments, by location and industry.

Venture capital

The undisbursed amount of authorized venture capital investments was $309,165 at September 30, 2014, and was

related to the following industry sectors.

Industry sector

Information technology 8,038 9,238

Biotechnology and pharmacology 4,748 7,112

Communications 4,000 -

Medical and health 4,000 -

Energy 1,610 320

Industrial 83 583

Electronics 76 639

Total direct investments 22,555 17,892

External funds 286,610 309,367

Venture capital investments 309,165 327,259

September 30,

2014

March 31,

2014

Commitments, by geographic distribution

Nova Scotia 168 3,554


Quebec 16,400 13,600

Ontario 35,999 24,442

Saskatchewan 4,625 625

Alberta 6,250 6,100

British Columbia 1,755 3,650

Total 67,447 53,721

Commitments, by industry sector

Manufacturing 20,164 22,408

Business services 15,701 10,549

Wholesale and retail trade 10,575 11,859

Mining, and oil and gas extraction 6,500 2,500

Construction 2,850 1,100

Transportation and storage 1,800 300

Information industries 957 695

Tourism 400 800

Other 8,500 3,510

Total 67,447 53,721

March 31,

2014

March 31,

2014

September 30,

2014

September 30,

2014

39



Venture capital action plan

The undisbursed amount of authorized venture capital action plan investments was $195,950 at September 30, 2014

($204,298 at March 31, 2014).

Asset-backed securities

The undisbursed amount of authorized asset-backed securities was $201,000 at September 30, 2014 ($196,000 at

March 31, 2014).

Leases

BDC has future minimum lease commitments under operating leases related to the rental of premises.

16. RELATED PARTY TRANSACTIONS

As at September 30, 2014, BDC had $14,698.0 million outstanding in short-term notes and $229.0 million outstanding

in long-term notes (excluding accrued interest) with Her Majesty the Queen in Right of Canada acting through the

Minister of Finance ($14,046.0 million in short-term notes and $273.8 million in long-term notes at March 31, 2014).

Accrued interest on borrowings included $5.7 million payable to the Minister of Finance as at September 30, 2014

($5.3.million at March 31, 2014).

BDC recorded $34.5 million in interest expense, related to the borrowings from the Minister of Finance, for the second

quarter and $66.8 million for the six months ended September 30, 2014. Last year’s comparative figures for the same

periods were $34.5 million and $66.9 million, respectively.

In addition, certain borrowings with the Minister of Finance were repurchased in the first six months of fiscal 2015.

This resulted in a net realized loss of $0.5 million for the first six-month period (no borrowings were repurchased

during the same period last year).

BDC is also related to all Government of Canada-created departments, agencies and Crown corporations. BDC

enters into transactions with these entities in the normal course of business, under terms and conditions similar to

those that apply to unrelated parties.

Business Development Bank of Canada Head Office 5 Place Ville-Marie, Suite 300 Montreal, Quebec H3B 5E7 T 1 877 BDC-BANX (232-2269) F 1 877 329-9232

For our business centres, please visit www.bdc.ca

http://www.bdc.ca/

quarterly report - q2 2015 - bdc...cmf. as of september 30, 2014, the sip team has invested in 92...

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